Agenda
        The Demand for Residential
                   VoIP Services:                                               ...
Phone
                                                                                                    competition
    ...
Size of VoIP Market?                                                                           VoIP "Drivers"

           ...
Key Driver: Broadband Growth                         Key Driver: Broadband Growth

 Broadband Availability                ...
Lognormal Demand                                                                           Data

    We have:
            ...
Market Potential I                                         Market Potential II




                                       ...
Discussion/Cautions                                      Discussion/Cautions

Price Matters                               ...
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The Demand for Residential VoIP Services:

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The Demand for Residential VoIP Services:

  1. 1. Agenda The Demand for Residential VoIP Services: Overview Summary of Recent Research Size of Market Demand for VoIP James Alleman, University of Colorado Paul Rappoport, Temple University Lester Taylor, University of Arizona Simulations/Results International Symposium On Advanced Radio Technologies Discussion/Cautions Boulder, Colorado 1-3 March 2005 Copyright © 2005 Paul Rappoport, Lester Taylor, & James Alleman. All Rights Reserved. Rappoport, Taylor, & Alleman The Demand for VoIP Overview Overview What is VoIP? What is VoIP? Who Wants to Buy VoIP? ƒ What it is not. Packet switching Market Factors ƒ Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP What it is not Packet switching - VoIP Circuit Switching “Voice over IP (VoIP) ƒDirect connection, opening a circuit. ƒ Protocols that transport real-time ƒHang up, circuit is closed voice and signaling via Internet ƒTen minute conversation Protocol (IP) 9.4 Megabytes ƒAllows the user to place a call over Transmitted data wasted -- over 75% IP networks One talks the other listens http://www.personal.psu.edu/users/f/x/fxz122/project/voip.html Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  2. 2. Phone competition IP has picked Includes PC-to-PC up to and Device-to-Device considerably Phone to IP & IP in the existing Overview voice market IP to Phone 1984 IP Phone and in the Includes PC-to-Phone 2004 new data and Device-to-Phone What is VoIP? Long-distance Broadband LD: 100smarket. Business Competition VOICE VOICE Local: 6* POTS Analog POTS PSTN Local One provider Internet VoIP PSTN Mobile: 6 nat’l Phone Analog Who Wants to Buy VoIP? Forrester Research Consumer Panel, Phone Gateway VoIP Gateway ƒ 1994 Phone POTS to Long-distance Broadband Broadband: Up to 3 10 January 2005 Phone providers 100s of IP Phone Analog VOICE DATA Phone Dial-up: 1,000s Local One provider CPE Analog Gateway Phone Mobile: 6 nat’l Circuit Switched / TDM Packet Switched Data Circuit Switched / TDM Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP VoIP Market Off to a Slow Start VoIP Market Off to a Slow Start Adoption limited Traditional Phone Service ƒOnly 23% of HH aware of VoIP ƒSatisfies most consumer’s price & ƒLess than 1% pay for VoIP quality needs ƒMost consumers are using local and Weak Interest LD enough to realize savings using ƒ Less than 10% “interested” in VoIP VoIP ƒConsumers are not willing to give up their phone company Forrester Research Consumer Panel, 10 January 2005 Forrester Research Consumer Panel 10 January 2005 Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Profile of Current Users Overview Technically Proficient Users What is VoIP? Users Younger & Mobile Who Wants to Buy VoIP? Users – Bargain Hunters Market Factors ƒ Relatively small market Forrester Research Consumer Panel 10 January 2005 Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  3. 3. Size of VoIP Market? VoIP "Drivers" 62 M Internet Households Broadband Telephone Bill Penetration 23 M High Speed Size of the Telephone Bill and High Speed Internet Access WTP > 0 6M $42 (23-24)% WTP > Total smaller Average local & LD bill Broadband % of households Telephone Bill Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Overview 0.250 Distribution of Telephone Bills What is VoIP? 0.200 Who Wants to Buy VoIP? 0.150 Target population when Cost = Market Factors Percent of Households $60 (VoIP + Broadband) 0.100 ƒRelatively small market ƒDistribution of Telephone Bills 0.050 The Higher the Bill, the Larger the VoIP Benefit 0.000 1-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 >100 Local and Long Distance Bill Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Overview Key Driver: Broadband Growth What is VoIP? Broadband Availability Who Wants to Buy VoIP? ƒ Only for Best Practice VoIP Market Factors ƒRelatively small market ƒDistribution of Telephone Bills The Higher the Bill, the Larger the VoIP Benefit ƒ Key Driver: Broadband Growth Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  4. 4. Key Driver: Broadband Growth Key Driver: Broadband Growth Broadband Availability Broadband Availability ƒ Only for Best Practice VoIP Broadband Growth Drivers? Broadband Growth Drivers? Price ƒContent – Gaming – Entertainment – ƒ Discounting Shopping ƒ Bundles ƒMultimedia and video Triple Play (Voice – Video – Data) Multimedia + Call Management Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Distribution of Income & Broadband Outline What is VoIP? Who Wants to Buy VoIP? Market Factors Modeling Demand for VoIP ƒ Willingness to pay Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Modeling Demand for VoIP Lognormal Demand Curves Focus on the Price ƒ Let: poi be the tolerance price of the ith. ƒ Economic value bounded household Estimation of Price Elasticities p be the actual market price ƒ Then qi = 1 if pio > p qi = 0 otherwise ƒ Assuming that pio is distributed as a lognormal with parameters µp & σp2 Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  5. 5. Lognormal Demand Data We have: Sample of over 50,000 P(qi = 1|p) = P(pio > p) = 1 - Λ(p; µp, σp2) households from March, 2004 Let Q represent the proportion of buyers we Centris random digit dialing have: (RDD) omnibus survey Q(p) = 1 - Λ(p; µp, σp2) Incorporated Willingness to = Λ(1/p; µp, σp2) Pay questions Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Willingness to Pay for Voice-Over-IP Households with Broadband Households with Dial-Up Access 0 20 40 60 80 100 120 WTP (Price) Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Elasticities Agenda WTP Broadband Non Broadband Households Households* $1-$10 -0.20 -0.80 Overview $11-$20 -0.59 -1.12 Size of Market $21-$30 -0.98 -1.44 Demand for VoIP $31-$40 -1.37 -1.76 Simulations/Results $41-$50 -1.76 -2.08 $51-$75 -2.54 -2.72 * Assuming $20 month for broadband Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  6. 6. Market Potential I Market Potential II 8,952,000 Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Market Potential III Agenda Overview Size of Market Demand for VoIP Simulations/Results 2,300,000 Discussion Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Discussion/Cautions Discussion/Cautions Price Matters Price Matters Broadband Penetration Broadband Penetration Matters Matters ƒ Focusing simply on "interest in VoIP" leads to significant over estimation of market size Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP
  7. 7. Discussion/Cautions Discussion/Cautions Price Matters ƒ Quality of service not addressed Broadband Penetration Matters ƒ "interest in VoIP" leads to over estimation of market size ƒRelationships between “price” & the distribution of telephone bills & between “price” & the distribution of Rappoport, Taylor, & important income Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Discussion/Cautions Discussion/Cautions ƒ Quality of service not addressed ƒQuality of service not addressed ƒ Potential regulatory rulings not ƒPotential regulatory rulings not incorporated into WTP incorporated into WTP ƒFocus only on VoIP delivered over the Internet Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP Discussion/Cautions Discussion/Cautions ƒQuality of service not addressed ƒQuality of service not addressed ƒPotential regulatory rulings not ƒPotential regulatory rulings not incorporated into WTP incorporated into WTP ƒFocus only on VoIP delivered over ƒFocus only on VoIP delivered over the Internet the Internet ƒRBOC responses not incorporated ƒRBOC responses not incorporated (e.g. Verizon’s Freedom plan) (e.g. Verizon’s Freedom plan) ƒALL OF WHICH WILL LEAD TO LOWER ESTIMATES Rappoport, Taylor, & Alleman The Demand for VoIP Rappoport, Taylor, & Alleman The Demand for VoIP

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